Mining construction set to peak in 2013: Deloitte

Australia’s mining construction boom is expected to peak later this year, economics advisory group Deloitte Access Economics says.

In its December 2012 quarter Business Outlook report Deloitte says the mega-mining construction projects which to date have accounted for a large portion of Australia’s production growth will likely peak in late 2013.

Although resource related construction will continue beyond 2013 and albeit more so than in comparison to times past, it is expected to be smaller than Deloitte’s predicted peak.

‘‘The strongest contributor to Australian growth will peak, so the rest of the economy needs to fill a potential pothole,’’ Deloitte said.

‘‘But federal and state government cuts have deepened that pothole.

‘‘And although interest rate cuts will help retail spending and housing construction more than is yet realised, that won’t be enough of itself.’’

But the Reserve Bank is tipping the mining construction peak will arrive earlier.

The Australian dollar continues to rein havoc on the manufacturing and mining industries and so a sharp divide has formed between the high Aussie dollar and falling commodity prices.

Deloitte’s report states that although project growth will struggle “global risks now look less dangerous”, citing a rebounding China, optimistic US growth and Europe’s central bank “doing the best that it can”.

In Deloitte’s Tracking the Trends 2013 report released earlier this year, the company predicts that miners will be forced to decide what projects should be delivered rather than financing “speculative long-term projects”.

In essence this means quality over quantity will be the motto for many miners as overrun costs and schedule slippage in mining projects not only worries lenders; they aggravate shareholders and attract media attention.

This is already happening in Australia: in August 2012 BHP Billiton’s $US20 billion Olympic Dam project was put on hold.

The company blamed weak commodity prices and rising costs.

However, in announcing the cutback BHP said it was looking at a different plan "involving new technologies" to make the project cheaper.

Shutting down projects like this is a sure-fire way to affect future profitability.

According to Deloitte Access Economics, the value of resources as a share of all projects in Australia’s planning pipeline fell from more than 56 per cent in June 2011 to 40 per cent in June 2012.

Adding to this statistic, a report by Newport Consulting found that just 25 per cent of Australian mining companies planned to make major capital investments in 2012, compared to 52 per cent in 2011.

“Mining companies can no longer lay claim to a deep portfolio of expansion projects when only a percentage of them are viable.

“Instead, companies must narrow the focus to those projects capable of delivering a demonstrable return on capital,” Deloitte said in its report.

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